Government calls for new types of pension schemes

[dutchman]

The government is exploring new types of pension schemes that would give more security to retiring workers.



Minister for Pensions, Steve Webb, says the government is looking at several options that might become, what he terms, a "defined ambition plan".

The idea is to replace final-salary pensions, which have become too expensive for many private firms.

The minister has been speaking to companies about creating a new framework for pension schemes.

In an interview on the BBC Radio 4 Today programme, Mr Webb said: "Firms would like to offer their employees some sort of certainty but without all the costs and burden they already face."

Shell recently become the last of the FTSE 100 companies to close its final salary scheme to new employees.

Final-salary schemes are popular as they deliver a guaranteed income in retirement that is linked to inflation.

But as people are now living longer, companies have seen the costs of those schemes soar.

Many firms have switched to defined-contribution schemes, where members pay into investment funds.

But those plans rely on the performance of financial markets, making it hard for workers to predict their income in retirement.

The pensions minister wants to find a model where the risks are more evenly shared between employer and employee.

One example suggested by Mr Webb is the cash-balance scheme used by the retailer Morrisons.

Under that model an employee receives a fixed pension pot on retirement, which they then have to invest.

The government has also been looking at pension schemes in other countries where such risk sharing is more common.